Fintech Innovations Press Credit Reporting Evolution

Consumer credit is an important element of a healthy economy, allowing borrowers to finance the purchase of homes, cars, and many other goods and services. While mortgage debt remains the largest source of U.S. consumer debt, non-mortgage debt balances also continue steady growth, pausing only slightly during the pandemic before regaining momentum. Over the last decade, the makeup of non-mortgage debt has changed with the acceleration of student lending and the development of new forms of personal lending. Throughout the changes, credit scores derived from consumer credit files have remained an effective tool for managing repayment risk. Lenders rely on the predictive value of scores to extend credit in responsible ways, allowing borrowers to reach their goals while building a solid credit profile. The credit bureaus provide an important service by collecting and maintaining information on credit transactions to support the transparency that lenders and borrowers need.

The evolution of personal lending products stimulated by fintech innovators has helped expand access to credit with online platforms that make personal lending simpler and faster. At the same time, new products like Buy Now Pay Later and Credit Builder cards have introduced disruption to the credit ecosystem because the transactions don’t fit cleanly into existing credit files and scoring processes. The credit bureaus have sought to maintain a complete record of borrowers’ credit obligations by including the new transaction types, but have not yet agreed on implementation. Scoring models must also adapt to these changes and to new data sources. A more rapid pace of innovation and data availability will help credit scores remain relevant.